Aug. 26: The new direct tax code (DTC) bill cleared by the Cabinet could leave an extra Rs 4,000-Rs 24,000 a year with you, depending upon your income. This would bring some relief to the common man struggling against high inflation, but expectations of a radical change in tax slabs have been dashed.
The earlier discussion on tax code had suggested a tax rate of 10 per cent on all income between Rs 1.6-10 lakh a year. The top rate of 30 per cent would have been applicable only on income over Rs 25 lakh a year. Compared to these, the changes that have been suggested are very minor, something of a dampner.
“The bill seems to be guided purely by revenue considerations,” says Mr Sunil Kapadia of E&Y. “The government seems to be walking a tightrope. They were anticipating a huge surplus on minimum alternate tax (MAT), which hasn’t come, so they can’t give too much away elsewhere,” he adds. In its earlier form, the bill had suggested a MAT on assets instead of profits. This proposal had met with very strong opposition from the industry. However, there has been one small relief for corporates — while corporate tax has been kept at 30 per cent, the cess and surcharges may be rem-oved. Because of these surcharges and cess, the effective tax rate for companies works out to 33 per cent.
Another proposal, which had been suggested in the original draft code was a tax on income from schemes such as provident fund, PPF and insurance. This too, was withdrawn from the revised code later. “While the Bill is still awaited, it appears that the it is likely to address significant concerns that existed on account of proposed introduction of EET regime, capital gains taxation and the like.
If indeed these concerns are addressed, the Bill will go a long way in simplifying tax laws and making them comparatively free of litigation,” says Mr Dinesh Kanbar of KPMG. In all, the intent of the government seems to be to maintain status quo says a tax consultant.